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May 4, 2006


With 50 new nuclear reactors expected to go online by 2020, potential
winners abound in this once-beleaguered field. Here are some of the
best plays.

By Michael Brush

Last week, when President Bush urged the nation to take action to deal
with rising energy costs, his comments confirmed what many experts
have been saying all along: It's time to go nuclear.

And thanks to record gas prices and looming fossil-fuel shortages --
not to mention an expected big spike in the demand for electricity in
the next decade -- a nuclear renaissance may indeed be at hand.

"It is not a matter of if, but when," says Dan Keuter, the vice
president for nuclear business development at Entergy (ETR, news,
msgs), a power company. "We are very bullish on the outlook for
nuclear power."

Because global electricity consumption will double in the next 25
years -- while reserves of fossil fuels begin to run dry -- experts
believe at least 50 new nuclear power plants will be up and running by
2020. Most of the plants will be built in China and India, but ground
could be broken on three or four plants in the U.S. in as little as
five years. It has been three decades since a nuclear plant was built
in this country. Start investing with $100.

One way for investors to play the growing use of nuclear power -- and
other alternatives to fossil fuel like wind and solar power -- is to
own shares of equipment producers like General Electric (GE, news,
msgs). It isn't exactly a pure play. But it stands to benefit from
double-digit revenue growth in these areas.

Near-term, the best way to play nuclear power is to hold shares of
electrical utilities that own the most nuclear plants. Power companies
like Exelon (EXC, news, msgs), Entergy, and Dominion Resources (D,
news, msgs) had the foresight to snap up dozens of nuclear plants on
the cheap in recent years. Now they have a cost advantage as the price
of natural gas, coal and oil shoot higher, squeezing competitors that
make most of their electricity from fossil fuels.

Another approach -- for long-term investors -- is to buy shares of
uranium mining and enrichment companies like Cameco (CCJ, news, msgs)
and USEC (USU, news, msgs).

Before we get to the details on these plays, here's a look at why we
are on the verge of a nuclear renaissance.

Governments turn to the nuclear option

The International Energy Agency thinks global electricity consumption
will double by 2030. Given the limited supplies of fossil fuels, many
governments realize they'll need to be switching on nuclear power
plants to meet that demand. France -- the extreme case -- already gets
80% of its power from nuclear plants.

But the global average is more like 16%. To change that, countries
around the world are rethinking nuclear energy. Finland, for example,
is breaking ground on a new nuclear power plant. China plans to fire
up at least two new reactors a year for the next 15 years.

In the U.S., President Bush clearly wants nuclear energy to play a
major role in weaning the country off fossil fuels. He recently
proposed ordering government agencies to compensate power operators
for regulatory delays.

A new generation of nuclear power plants will be safer

The next generation of nuclear reactors will be safer than the ones we
have now. The chief difference: The way they deliver huge amounts of
water to contain the core in case of a meltdown. Older reactors use a
series of pumps, valves and pipes that rely on humans and electricity
to work. Newer reactors will have big tanks above the reactor ready to
simply dump water on the core in case there's a problem. Despite fatal
mishaps abroad, reactors in the U.S. have never killed or injured
civilians, says Keuter of Entergy.

There's another advantage that makes nuclear power a more secure
energy source, says Caroline Slama, author of a comprehensive guide to
investing in nuclear energy published by Societe Generale Group and SG
Cowen late last year. Uranium is produced in politically stable
regions such as Canada and Australia. But gas and oil come mainly from
less stable regions.

Nuclear power may be cheaper

Comparing the costs of the different fuels used to power turbines can
be tricky -- because you have to make so many assumptions. But nuclear
energy will be cheaper if you make a few reasonable educated guesses.

First, because they are expensive to build, nuclear plants would have
to operate near capacity levels to get the most bang for the buck.
Next, competing fuels like natural gas would have to remain expensive.
Finally, if governments tax carbon emissions at power plants using
fossil fuels -- a likely option -- nuclear energy will be
comparatively cheap, points out John Holdren, a professor of
environmental policy at Harvard University.

Other renewable sources not enough

With the help of government subsidies, power companies have
experimented with "renewable" energy sources like wind and solar power
for years. So far, they're not convinced there's a bright future in
the near term. Part of the problem with wind power is that turbines
only run about 35% of the time. So it is hard to generate enough
electricity to cover costs in a way that makes the power cheap enough
to compete, says Helen Howes, the vice president of environment,
health and safety at Exelon.

Ironically, given that many environmentalists oppose nuclear energy,
atomic power may be the best way to cut down on so-called greenhouse-
gas emissions, which may cause global warming.

If global nuclear capacity tripled by 2050, that would cut the
expected increase in carbon emissions by a fourth, says a 2003
Massachusetts Institute of Technology study called "the Future of
Nuclear Power."

The timeline

So what will be built, where, and when? By far, the biggest growth
will come in China and India. Plans for boosting nuclear capacity
suggest we'll see 29 new plants in China over the next 15 years and 17
new ones in India, says Peter Wells, marketing manager for GE Energy's
nuclear business.

In the U.S., several power companies are hoping to finish site
selection for plants this summer. Applications will go in by 2008 and
construction could start in 2010. The plants would be finished four or
five years later. Expect three or four new plants in this first phase
of construction.

One obstacle: Energy policy makers will have to overcome political
opposition to DOE plans to store nuclear waste inside Yucca Mountain,
in Nevada. "Before building a new plant and creating additional waste,
we need to know the long-term strategy for the waste," says Marilyn
Kray, the vice president of nuclear development at Exelon.

Here's a brief look at how to play the nuclear renaissance as an

Utilities: Nuclear pays now

Forward-thinking utilities like Entergy snapped up lots of nuclear
power plants in recent years. Now that natural gas, coal and oil are
so much more expensive, payday has arrived. "It definitely gives us an
advantage," says Entergy's Keuter, who's in charge of buying nuclear
plants for the utility. "Our cost of electricity is substantially less
than the competition."

According to the Federal Energy Regulatory Commission, nuclear power
cost 1.72 cents per kilowatt hour in 2003, while gas and oil cost
above 5.5 cents. Coal cost about 1.8 cents.

Roger Conrad, editor of the investment newsletter Utility Forecaster,
says our nation's 103 nuclear power plants are concentrated in the
hands of six utility companies -- which has made those companies good
investments. "They are a huge profit center for these companies," says

Here are the three with the most nuclear reactors, along with Conrad's
buy limit for the stocks: Entergy (under $70 per share), Exelon (under
$46) and Dominion Resources (under $72). Three others with the most
nuclear power plants are Southern Company (SO, news, msgs) (Conrad's
buy limit: under $30), Constellation Energy Group (CEG, news, msgs)
(under $45) and FPL Group (FPL, news, msgs) (under $40).

Uranium companies: Playing a price jump

Cameco, a Canadian mining company, has about 17% of the global market
for uranium. Uranium prices tripled to $24 per pound recently when
Russia reversed plans to release nuclear warheads for commercial
uranium extraction. Cameco will have to wait three or for years to see
the benefits, since it currently operates under long-term contracts.

Figuring out how to invest in uranium enrichment is simple: There's
only one publicly traded company that does it, USEC. Barriers to entry
in the business are high, since the technology behind enriching
uranium remains classified. The company is developing a new enrichment
technology that should reduce costs considerably, says Steven
Wingfield, who handles USEC investor relations.

General Electric: More than just nuclear

GE is a blunt way to play the nuclear and renewable energy themes
because its units in those areas net around $4 billion in sales, small
compared to the company's $152 billion in annual revenue.

GE is a leader in equipment and services used in nuclear power
generation. The company generates about $1.5 billion in revenue a year
here. It expects this market to grow about 5% a year over in the
medium term.

Thanks to generous tax credits for the development of wind-powered
electricity, that side of GE's energy business is going gangbusters.
Wind-turbine sales should generate $2.25 billion this year. The
company expects double-digit growth in this market for several years.
"We see very strong demand for our products and services," says Mark
Little, the vice president of power generation for GE Energy. "The
demand is so strong, if we could make more turbines we would sell

At the time of publication, Michael Brush did not own or control
shares in any of the companies listed in this column.